Prior to engaging a solicitor, a hedge fund manager should conduct due diligence on the solicitor and the broker-dealer. If the manager does not possess the skill set necessary to conduct due diligence, it should employ a professional to conduct adequate due diligence on the solicitor. Key areas of concern include:
the solicitor’s conflicts of interest, such as a clear disclosure of all sources of income received by the solicitor and other hedge fund managers represented by the solicitor;
the method and level of due diligence conducted by the solicitor of each prospective investor;
the information provided by the solicitor to prospective investors;
the licenses (e.g. Series 7) held by the solicitor;
the sources and amount of capitalization of the solicitor (determine whether the solicitor’s business is properly funded); and
the corporate structure of the solicitor and the identity of its principals.